Financial Indices

The objective of this white paper is to provide an introduction to financial indices. This includes a discussion on the basics of financial indices, an overview of index methodologies and a detailed insight into the index life cycle, creation and maintenance processes. This paper concludes with a review some of the commonly cited challenges encountered when designing an index creation engine (ICE).

Excerpts from the Paper

What is an index? In financial economics, an index is a measure of the proportionate, or percentage, change in a set of values (prices or quantities) over time. In the case of financial indices, this is the prices of stocks, bonds and other forms of investment. An index is typically assigned the value of 100 in some base period. The values of the index in subsequent periods indicate the average proportionate change in prices (or quantities) from the base period. What types of indices exist? Many types of indices exist in today’s financial markets. These include price indices (such as the CPI), quantity indices (such as real GDP), market performance indices (such as labor market indices) and financial indices. This paper deals with financial indices. So why are financial indices so important? It all comes down to the central role they play in the global capital markets